Greece's Debt Crisis: Lecture Notes

The 2004 Athens Olympics

• Event: 11,000 athletes participated
• Cost: €9 billion
• Outcome: Highly successful, termed "Unforgettable dream games" by Jacques Rogue

Aftermath and Initial Signs of Crisis

• European Commission: Placed Greece under strict financial monitoring in 2005
• Debt Problems: Became apparent post-2004

Greece and the Euro

• Adoption of Euro: 2001
• Maastricht Criteria: Conditions for adopting the Euro
  • Inflation < 1.5% above the average of the three lowest-inflation EU members
  • Government deficit < 3%
  • Debt to GDP ratio < 60%
• Financial Misreporting: Greece falsified data to meet criteria

Pre-Crisis Financial Situation

• Borrowing: Greece borrowed heavily at low-interest rates post-Euro adoption
• Government Spending: Funds used for social programs, tax cuts, and pension expansions
• 2008 Financial Crisis: Exacerbated Greece's financial instability
  • Debt to GDP: 127%
  • Budget Deficit: 15% of GDP

Unveiling the Crisis

• 2009: New government revealed underreported budget deficits
• Capital Markets Shutout: Greece couldn't issue new bonds
• Risk of Default: Threatened Greece's position in the European Union
• Interest Rates: Default would lead to prohibitively high future interest rates

2010 Bailout

• EU and IMF: Provided €190 billion in bailout funds
• Austerity Measures: Greece had to implement reforms to control its public finances

Economic and Social Impact

• GDP Contraction: 25% reduction from 2008 to 2018
• Unemployment: Over 25% by 2013
• Continued Austerity: Despite unpopularity, more measures were implemented

Third Bailout and Beyond

• Final Bailout: In 2018
• End of Crisis: Marked by EU officials in August 2018
• High Debt Levels: Greece still holds the highest debt to GDP ratio in the EU

Comparative Insights

• Japan vs. Greece: Differences in debt crisis outcomes
  • Japan's Debt to GDP: 138% vs. Greece's 127% in 2008
  • Global Competitiveness: Japan ranked 9th vs. Greece's 67th
  • Interest Rates: Japan <1%, Greece ~30% on 10-year bonds by 2008

Root Causes of the Greek Debt Crisis

• Taxation Crisis: 2008 recession reduced tax revenues
• Corruption Crisis: Falsification of financial data
• Monetary Sovereignty Crisis: Inability to print Euros
• Competitiveness Crisis: Inefficient government spending

Lessons Learned

• Strategic Investment: Proper use of borrowed funds could avert crises
• Monetary Policy: Ability to print currency may shorten crisis duration
• Policy Implications: Future governments need to draw lessons from Greece's experience